HMRC has changed its guidance on the VAT treatment of supplies of digital advertising to charities following extensive discussions led by the Charity Tax Group. They have announced that the zero rate of VAT is applicable to a range of digital advertising services when supplied to charities.
There is a zero-rate of VAT for certain supplies of advertising media to charities. However, HMRC had previously considered that this did not apply to most digital advertising on the basis that it was targeted towards specific individuals.
While it’s important for the charity to establish if their advertising costs fall into the zero-rate relief or not.
Zero rate of VAT applies to third-party advertising services to a charity when the services benefit the general public.
Hence, zero rates do not apply to the advertising services if a member of the public is to receive the advertising on behalf of the charity. In these circumstances ‘selected’ includes any method of contact, including electronic communications.
Previously, HMRC ruled that most digital advertising should be subject to VAT. They had also raised assessments to recover VAT from some advertising agencies, which then passed the cost to the charity.
They have also taken the view that this is a retrospective issue. So, charities that believe they have overpaid VAT in last four years can go to their suppliers to seek refunds. Equally, suppliers can make an application to HMRC for overcharged VAT. However, they are likely to have to show that the repayments will be passed on to the relevant charity customers under the unjust enrichment provisions.
